Shaping the growth agenda - AFME · Shaping the growth agenda London O˘ce: ... •Mahmood Pradhan, Deputy Director & Mission Chief to the Eurozone, IMF •Peter Praet, Member of

Association for Financial Markets in EuropeAnnual Review 2013

Shaping the growth agendaLondon Office:St Michael’s House1 George YardLondon EC3V 9DHUnited Kingdom

Switchboard:+44 (0)20 7743 9300

Brussels Office:Square de Meeûs 38-401000 BrusselsBelgium

Switchboard:+32 (0)2 401 8724

www.afme.eu

Follow AFME on twitter:@News_from_AFME

Policies and products

Primary Dealers/Rates

Covered Bonds Trading

Credit

Equities Trading

Equity Capital Markets

Corporate Finance

Regulation

Resolution/CrisisManagement

Foreign Exchange (FX)

Commodities

High Yield

Securitisation

Prime Services

Post Trade

Compliance

Accounting

Tax/VAT

Fixed Income Equities Prudential Global

Policy and Compliance

Board member firms

3594_AFME Annual Review Cover_P_Layout 1 03/09/2013 12:27 Page 1

The Association for FinancialMarkets in Europe advocates stable,competitive and sustainable Europeanfinancial markets that supporteconomic growth and benefit society

For our members

We continue to develop our services and resources to givemembers a greater voice and help them make sense of the ever-changing regulatory landscape.

Our member firms have the opportunity to engage with AFME on our divisionalboards, committees and working groups, and it is this which provides us thefoundation for our success and influence at the EU level. These groups enable ourmember firms to be a real part of the consultation process and to exert influence bygetting their voice heard by regulators. Regular meetings of boards and committeesamongst our diverse and widespread membership base also creates a range ofnetworking opportunities for members.

Stay informed

Given the pace of regulatory change, it is crucial that our members stay informed.AFME ensures that members are kept up to date with changes in legislation andgovernment initiatives, helping save costs and improve efficiency when they deal withcompliance and regulatory issues.

Our networking opportunities and our range of resources ensure that members areaware of regulatory and industry developments. Our monthly member newsletteralerts members to the developments in different divisions and provides an overview ofAFME’s work. Members also receive complementary subscriptions to the GFMA GlobalWeekly Update and Smartbrief.

Members also receive special admission rates to many AFME events, conferences andworkshops, which also present speaking opportunities to members. You can find outmore about the various membership options on the membership pages of AFME’swebsite at www.afme.eu.

Briefings on the issues that matter

AFME offers its members the opportunity to take part in members-only briefingcalls on topical regulatory issues, led by policy experts and specialists fromwithin our member community. These calls provide analysis and insight intoproposed regulations and developments that affect the wholesale financialservices industry. They offer an interactive platform for members to engage witheach other and discuss the key issues at stake. Some examples of topics coveredover the past year include: MiFID, banking union, resolution and the outlook forEurope. We often join forces with other organisations such as SIFMA, ICMA orISDA to host these calls, which last year drew in around 2000 registrants.

Listen to the recording of previous calls and sign up to be notified of forthcomingbriefing calls on AFME’s website (www.afme.eu).

Giving back to the community

AFME employees have taken part in volunteering for charitable and communityinitiatives over the past year. Staff have dedicated over 330 hours to volunteeringat a children’s hospice, gardening for a local primary school and serving breakfastto London’s homeless community. Staff have also donated clothing to a homelessshelter and raised funds for the hospice.

Who are our members?

Full members, who can take part inthe entire range of AFME activities,include global and regional banks,corporate finance advisers andbrokers.

Associate members tend to havemore specific interests, and canparticipate in the high-yield andsecuritisation divisions and otherselected divisional workinggroups. Typical associate membersare accountancy and law firms,data and services providers,investors, ratings agencies, stockexchanges and trustees.

Events

This year, more than 5000 delegates attended some 20 AFMEconferences in Berlin, Brussels, London, Madrid and Milan. Ourconferences provide high-level networking and thought leadership andhelp us build relationships with key decision-makers.

We held specialist conferences on:

• European market liquidity• High yield • Global asset-backed securities• Government bonds• Post-trade

Our speakers have included:

• Michel Barnier, Commissioner,Internal Market and Services,European Commission

• Sharon Bowles MEP, Chair,European Parliament’s Economicand Monetary Affairs Committee

• José Manuel Campa, Professor ofFinancial Management andEconomics, University of Navarra-IESE, Ex Secretary of State, memberof the Liikanen group

• Elizabeth Corley, CEO, AllianzGlobal Investors

• Mathias François Dewatripont,Professor of Economics, Universitélibre de Bruxelles

• J. Christopher Flowers, Chairman,J.C. Flowers & Co. LLC

• James Lockhart, Vice Chairman, WL Ross and Former Director,Federal Housing Finance Agency

• Steven Maijoor, Chair, ESMA

• Mahmood Pradhan, DeputyDirector & Mission Chief to theEurozone, IMF

• Peter Praet, Member of theExecutive Board, European CentralBank

• Yalman Onaran, Senior Writer,Bloomberg

• Olivier Sarkozy, Managing Director,The Carlyle Group

• David Wright, Secretary General,IOSCO

To view the latest additions toAFME’s events calendar, visit theevents pages on AFME’s website.


In last year's report, I suggested that we were entering a new phase,that of implementing regulatory reforms rather than designing them, andthat of operating in the brave new post crisis world, rather than thinkingabout it. While I was probably a little ahead of the reality, we have made realprogress and, a few implementation errors or distractions aside, we areclosing in on the longer-term financial framework: the EU has agreed a CRDIV package and the United States has published a Basel III framework. Incontrast to the US, the road to recovery in Europe is proving long and steep.Five years after the crisis, European banks are still raising capital andEuropean states are hardly out of the woods in their own financial affairs.

The challenge for European policymakers remains to implement the G20 reform agenda, whiledealing with Europe's deficits and keeping sufficient funds flowing to support growth. We knowthat expanding the role of the capital markets in Europe is the only answer. The outlines of a newframework for the capital markets can be seen in MiFID. Not surprisingly, AFME has been workingclosely with regulators on this dossier, as well as the Resolution and Recovery Directive. In theend, the real test is how those reforms will contribute to growth and financial stability. It is withthis in mind that we have added the focus of generating growth to the AFME agenda and why wehave warmly welcomed the work by Michel Barnier to define a positive agenda on long-terminvestment. And with our report on ‘Unlocking funding for European investment and growth’, AFMEis adding further substance to the topic.

We have also made progress on issues such as securitisation, where policymakers increasinglyrecognise that good quality securitisations can widen access to, and increase availability of,funding. Such tools are vital to help Europe move, over time, to restore adequate funding to theeconomy. Similarly, we can claim some improvements on the capital treatment of counterpartyexposure for corporate derivatives - again, we think this is helpful to the growth agenda.

Finally, through the banking union project, Europe is moving to a deeper phase of integration.AFME strongly supports banking union and we are committed to help it succeed and strengthenthe Single Market. In this regard, we would also stress the importance of having the UK maintainits role as a full and committed partner in Europe’s financial markets. Against these positives, theCommission has sought to push forward a number of European initiatives, including a financialtransaction tax and the Liikanen proposals. The case for such measures has not been made. Nor,in my view, can it be made, given the likely damage they would cause to funding markets, and theimpact this will have on an already anaemic European economy.

It remains an extraordinary moment for the industry, particularly in Europe. I have beenprivileged to be part of this transformation not only in my own firm, but within the industry,working with our members and the Board of AFME for the last four years. I would like to expressmy gratitude to the Board of Directors, and to the excellent executive team at AFME. Myparticular thanks and gratitude to Simon Lewis, whose leadership as CEO has brought out thebest of what an association can offer, and to our outgoing Vice-Chairman, Benoît de Vitry ofBarclays. I have greatly enjoyed our interaction and valued their advice.

Finally, I am delighted to be succeeded as chair by such a high quality individual as FrédéricJanbon of BNP Paribas who will, no doubt, take the organisation to new heights.

Message from the Chairman

3 AFME/ Annual Review/ 2013

By Gaël de Boissard

3594_AFMEAnnualReview_8ppText_P_Layout103/09/201311:37Page1

AFME is playing an important role in helping to developEurope’s capital markets so that they can play a fuller role inproviding a source of finance to Europe’s businesses andcontribute more to growth, says Chief Executive Simon Lewis.This has been a year in which the banking sector has continued to deal with thebreadth of regulatory and structural reform, as well as one in which policymakers haveshifted their own agenda from financial reform towards creating an environment thatwill help to kick-start Europe’s economic growth.

Financing growth in the real economy in Europe faces clear structural challenges.Businesses have traditionally relied on bank funding rather than accessing the capitalmarkets. Yet both borrowers and investors point to the need to expand the capitalmarkets, an issue recognised in the European Commission’s Green Paper ‘The long-term financing of the European economy’’.

AFME is helping to define how Europe’s capital markets can help fund Europe’s future.We started the debate last September when we hosted a roundtable discussion inBrussels on ‘Financing European Growth’, addressed by Commissioner Barnier. Theevent was designed to stimulate the debate around how the capital markets can be akey source of finance for businesses of all sizes across Europe and investors. Wefollowed this with the publication this summer of an in-depth study of the barriersexperienced by Europe’s businesses in obtaining funding, and the potential solutions.

Providing insight

There are a number of proposed initiatives in process that will fundamentallychange the way the markets work and it is essential that the economicevidence and impact of these initiatives is properly understood. Take, forexample, the proposed financial transaction tax, which will have a negativeimpact on businesses and investors in several ways.

A tax on equities would increase the cost of raising capital for Europe’sbusinesses. A tax on bonds would increase the cost of debt funding for bothbusinesses and governments. A tax on derivatives would have a negativeimpact on hedging transactions undertaken by the real economy. AFME hasdeveloped an evidence-based body of work that demonstrates the severeeconomic effects of such a tax.

AFME is well-positioned to provide a practical and constructive capitalmarkets view through our highly skilled policy and advocacy experts inLondon and Brussels and because we work so closely with marketpractitioners from member firms. The technical expertise we bring toregulatory discussion and the quality of our Board and committee membersare particular assets. We also have a role to play in analysing and articulatingthe significant changes under way in the industry – improvements in riskmanagement, governance, remuneration and key market infrastructures, andthe changing circumstances being brought about by the economic cycle andregulation. Financial reform is necessary to restore confidence in theoperation of our markets and our institutions, and to make both safer.However, we need to beware of unintended consequences that may havenegative repercussions for growth, investment and jobs.

I would like to thank Gaël de Boissard who has been an outstanding chairmanover the last four years. He has shown leadership on behalf of the industry at achallenging time and has provided wise counsel and strategic direction toAFME from its formation. I would also like to thank Benoît de Vitry for hissignificant contribution over the same period. We appreciate the activeparticipation of our Board; they commit time and energy to AFME outsidetheir daily work.

Shaping the growth agenda

AFME/ Annual Review/ 2013 4

Engaging in Europe...AFME’s Brussels office has become arecognised part of the Brusselslandscape. It has provided animportant platform for AFME and itsmembers to participate in the widerange of financial services filescurrently under discussion.

AFME's presence in Brussels hasallowed it to make a valuablecontribution to the policy processbased on timely, ongoing, evidence-based engagement.

Simon LewisAFME’s Chief Executive


Engagement

Central to AFME’s mission is our engagement with European legislators andpolicymakers. During the past year this work has been taken forward strongly.We have continued to build AFME’s reputation as a strong and reliableparticipant in the dialogue that supports the European legislative andregulatory processes.

Key to AFME’s engagement in the unprecedented range of financial servicesfiles currently under discussion – including the Capital Requirements Directive(CRD IV), the Markets in Financial Instruments Directive (MiFID), the Marketsin Financial Instruments Regulation (MiFIR), bank recovery and resolutionand the financial transaction tax (FTT) – has been the opportunity we have toharness the technical and policy expertise of AFME’s members. This hasallowed us to develop contributions to the discussions which are both stronglytechnically informed and designed to advance outcomes helpful to theEuropean economy.

We have continued to develop our network of relations across the Europeancapitals. This has been supported by our positively received work on forward-looking topics - such as the growth agenda and banking union - where ourthought leadership has allowed us to strengthen our relations with keypolicymakers.

Leading the debate on growth

Leading the debate about the future of our markets and producingconstructive and thoughtful content is an essential part of AFME’s role. Ourparticular position enables us to bring market participants and industrybodies together to examine the major issues concerning the wholesalefinancial sector.

One of our key tasks this year has been to support the re-establishment offinancial stability in Europe and to enable the capital markets to resume theirrole in funding growth and investment. Liquid capital markets and a well-functioning banking system enable investment in economic growth, channelfunds from companies and households with surplus cash to ventures andprojects that need funding, and help corporate users, investors andinstitutions to hedge risks and plan for their financial future.

As part of this initiative, we launched our ‘Unlocking funding for Europeaninvestment and growth’ report this summer. The report provided feedbackfrom companies and investors on the barriers to financing and identifiednearly 50 targeted actions – with each of these addressing specific obstacles toinvestment and growth. This report, written by AFME and Oliver Wyman, wasunique, drawing new insight from borrowers, owners of small businesses,CFOs of large companies, insurers, pension funds and asset managers on howthe capital markets work for them and what changes they think will unlockthe investment needed for growth.

The message from this study was that Europe’s businesses want moreflexibility in accessing funding, through expansion of capital markets channelssuch as European private placements, infrastructure, real estate, high yieldand securitisation in order to improve distribution channels to capital marketsto complement existing bank lending. European regulators are thinking alongthe same lines. The Commission sought input into how to achieve sustainablegrowth and meet Europe’s large-scale long-term investment needs in itsconsultation on the Green Paper on this issue. At AFME we aim to helpstakeholders understand the issues at stake.


...and beyondAFME continues to maintain stronginternational connections, workingclosely with industry associations inother regions of the world.

We promote regulatory coordinationat a global level through ourmembership and current leadershipof the Global Financial MarketsAssociation (GFMA) – this enables usto leverage the resources of AFME,the Securities Industry and FinancialMarkets Association (SIFMA) and theAsia Securities Industry and FinancialMarkets Association (ASIFMA) topromote regulatory coordination at aglobal level. [Read more on ourglobal outreach on page 10].

Funding for growth

Europe faces an enormouschallenge in the years aheadand needs a financial systemthat can deliver capital at theright price. A new reportpoints to some of the waysthat goal might be achieved.

Foreword by Philip Coggan,Buttonwood columnist of TheEconomist, to AFME’s ‘Unlockingfunding for European investment andgrowth’ report, June 2013

“


Supporting our members

We provide advice and support for our members through regular engagementwith our dedicated working groups and through publications that illustrateAFME’s thinking on the latest issues. AFME draws on its team of experts toprepare insightful discussion papers, briefings, guides to best practice andregulatory updates as well as to present the industry’s perspective in ourresponses to specialist consultations.

Our conferences include both large-scale and small events, but all draw onexpertise from thought-leaders in the industry. They involve eminent andhigh-profile speakers and in 2012 our programme included conferences onasset-backed securities and market liquidity that are acknowledged as industryleaders. Last year, we also held an inaugural ‘Insight Roundtable’ in Brusselswhich focused on collateral use and rehypothecation in a discussion forumbetween policymakers and industry participants (Read more about the eventson offer in our ‘events update’ on page 12).


...the Association for FinancialMarkets in Europe (AFME),which encompasses banks andinvestors, last week proposeda series of measures aimed atfacilitating the access of SMEsand intermediate-sizedcompanies (ETIs) to non-bankfinancing.Option Finance, 1 July 2013

“

The global head of fixedincome at BNP Paribas hasbeen named chairman-elect ofthe Association for FinancialMarkets in Europe, theinfluential lobby group for theregion's investment bankingcommunity.Financial News, 15 July 2013

“

Policy priorities 2013CRD IV – ensuring the effective development of Level 2 technicalstandards

MiFID II – achieving positive outcomes at Level 1 on priority issues toensure MiFID promotes stable, liquid and transparent markets

Financial sector taxation – positioning AFME as an influential voiceagainst the European FTT through objective evidence gathering andend-user engagement

Banking union – serving as a positive and practical voice in the policydebate on the future supervisory framework for banking in Europe

Resolution and crisis management - providing strong intellectualinput to the draft EU directive and encouraging policy coherence at theglobal level

Market infrastructure - analysing the broad regulatory agenda andadvancing industry-led initiatives to promote well-integrated marketinfrastructure

Reputational repair - working with AFME members on respondingpositively to the reputational challenges to the industry

We recommend that theCommission develops andcontinues to support acomprehensive legal,regulatory and secondarymarket architecture whichprovides businesses with thedistribution channels neededby long term investors toaccess the instruments andsecondary market liquiditythat they need. AFME response to EuropeanCommission Green Paper on the long-term financing of the Europeaneconomy, June 2013


Funding for growth

Our overarching theme for this year has been researching how we can enablethe capital markets to resume their role in funding growth and investment.This initiative began with our Brussels symposium on ‘Financing EuropeanGrowth’ that took place last September and continues with our ‘FinancingGrowth: Capital Markets, Investment and the Economy’ event on 24thSeptember. This invitation-only event brings together senior speakers andopinion formers from the European financial industry, the corporate sector,regulators and politicians. Lord Mandelson will deliver the keynote address atthis event, there will be a keynote speech from Paul Tucker, Deputy Governorfor Financial Stability at the Bank of England, and a set-piece interview withUrs Rohner, Chairman of the Board of Directors of Credit Suisse Group.

FTT

AFME has opposed the introduction of a financial transaction tax in 11 EUmember states through enhanced cooperation, as currently proposed, and wehave been urging policymakers to consider a radical redesign of the proposal.Such a tax would clearly have a negative impact on our member firms and onthe European economy at large. It would particularly hit the end-users offinancial products, such as corporates and investors, and we commissioned anindependent in-depth study to analyse the impact that the tax would have onthese end-users. Over the past year AFME has continued its constructivedialogue with policymakers and real economy groups on this topic and willcontinue to do so. With a new stamp duty that was introduced in Italy inMarch, followed by the taxation of equity derivatives in September, we havealso been helping members with its practical implementation.

Resolution/Crisis management

AFME has continued its strong engagement in establishing an EU resolutionregime for banks. We have been heavily involved in shaping the proposedBank Recovery and Resolution Directive (BRRD), having provided many of theamendments that appear in the Parliament and Council compromise texts.Two new Commission proposals were introduced this year, the SingleResolution Mechanism (SRM) and the Deposit Guarantee Scheme Directive(DGSD). These initiatives, together with the European Stability Mechanism,include four different funds to pay for resolution. The funds in the BRRD, SRMand DGSD add up to about €140 billion to be paid by the industry. AFME hasbeen concerned that these funds should not be deployed as bail-out funds. Wemaintain that the mutualisation of any losses other than to insured depositorsin the form of deposit insurance - whether funded by the taxpayer or theindustry - fosters moral hazard.

While significant progress has been made over the last year towards creatingan effective resolution regime, important challenges remain in terms ofagreeing the dimensions of the SRM and the DGSD and the extent to whichlosses beyond those of insured depositors are funded collectively.


Oxera finds that the FTT willmake some transactionsuneconomic, including someactivities involved in marketmaking, trading ofgovernment debt, andrepurchase agreements(repos).

Adjusting the modellingresults to reflect more realisticscenarios, the negativeeconomic impact could begreater and there is a risk thatthe imposition of the FTTactually reduces total taxrevenues from the economy. Analysis of European Commission staffworking document on the proposedfinancial transaction tax, AFME-commissioned report prepared byOxera, May 2013

The issues at stake

With a broad member base and strong national, regionaland international links, AFME is working on a wide range ofissues at any one time. Our activities in 2013 have included researching how to get the investment requiredfor Europe to achieve long-term growth and responding to consultations on an arrayof issues related to financial regulation. However a number of developments havebeen of particular importance for our members over the past year, making ourachievements in these areas of particular significance.

Banks are continuing to andwill continue to play theprincipal role in providingfunding for corporates in theshort, medium and long termspectrum in their dual role aslenders, as well as thearrangers and distributors ofcapital market investments.AFME response to EuropeanCommission Green Paper on long-termfinancing of the European economy,June 2013

FX traders face 'massive'FTT cost jump

European policymakersshould eliminate FXderivatives from the scope of aplanned financial transactiontax because of the potentialfor huge cost rises for marketparticipants using theinstruments for crucialhedging activity. This is therecommendation made bytrade body the GlobalFinancial Markets Associationin a study released today.Financial News, 8 July 2013

“


Banking union

Banking union has been a priority for AFME over the past year. In September 2012we set up a new AFME internal committee specifically to deal with this project. Aspart of our research in this area, we published a report ‘Supervising cross-borderbanks in Europe’, based on the findings from in-depth interviews conducted with13 AFME member firms. We are now preparing for the publication of theforthcoming ECB consultation on the Framework Regulation on the operations ofthe Single Supervisory Mechanism (SSM) and for the Asset Quality Review (AQR),which all take place in early 2014.

We have engaged in a thorough senior-level outreach strategy to discuss the keyfeatures of the future SSM set-up and functioning and have now begun to reflecton the proposed SRM. AFME’s Special Committee on Banking Union will joinforces with the Crisis Management Working Group to coordinate efforts andfinalise an initial position on the SRM in September 2013.

AFME is also organising a banking union event to be led as a joint initiative withthe European Banking Federation which will take place in the second half ofNovember 2013. This will provide an opportunity to discuss the state of SSMpreparations, to exchange views on legislative developments on the SRM and toconsider banking union from a Single Market perspective.

CRD IV

CRD IV, which aims to transpose the Basel III agreement covering areas such ascapital, leverage, liquidity and counterparty risk into European Banking Law,remains an important priority for AFME members.

The CRD IV package has now been published in the EU Official Journal and mostof AFME’s key positions have been reflected in the final text. Nevertheless, severalimportant issues, particularly in relation to liquidity, have been passed to theEuropean Banking Authority for consideration and calibration over the CRD IVobservation period, and we are engaging with the EBA, national regulators andother interlocutors under the Level 2 process. As part of this, AFME’sSecuritisation division continues to work for the inclusion of high qualitysecuritisations in the liquid asset buffers.

MiFID II

The MiFID review is one of the most important legislative reforms of Europe’scapital markets. With the overarching aim of protecting investor choice, AFMEwholly supports the objectives of the review: enhanced transparency, improvedprice formation, and increased fairness and confidence. As the EuropeanCommission’s proposals for broadening and deepening MiFID move through theEU legislative process, we are making the case for balancing the need fortransparency with the need for discretion, adhering to the G20 trading obligationwhile ensuring only appropriate trades are in scope and increasing consumerprotection without compromising choice and quality of service.

We are engaging with the European Parliament and Council as they develop andnegotiate their positions on the European Commission texts, with the Commissionas it clarifies its proposals and with ESMA as it prepares implementing measures.Our key challenges will include preservation of a role for the retention of OTCtrading, liquidity-sensitive transparency requirements and user choice of tradingand clearing venues. Responding to the evolving positions, we have deployedanalysis papers, amendment suggestions and supporting evidence. Many ofAFME’s positions are consistent with those of other stakeholders, includingsovereigns, corporates and investors.


The magnitude of the problemfacing Europe should notdishearten those who wish toimprove the situation. Thereare a large number of possiblesolutions to stimulate growth,some implementable solely bythe relevant private sectorindustry groups, others likelyrequiring some type of publicpolicy support/interventionand others a combination ofthe two. AFME’s Unlocking funding forEuropean investment and growthreport, June 2013

As and when demand forinvestment returns, it isessential that supply be able torise to meet it. Moreover, long-term, Europe needs a systemthat is robust in the face ofshocks. This will require thedevelopment of diversefinancing channels, coveringbanks, bond markets, andstock markets. Financing European growth: Thechallenge for markets, policymakers,and investors, an AFME-commissionedreport by John Llewellyn and BimalDharmasena, September 2012

[AFME] thinks that in theforeseeable future lending tosmall businesses (SMEs) islikely to remain primarily inthe hands of banks. But theAFME survey ... also advocatesalternative forms of financingsuch as securitised SME loans,high-yield bonds or privateplacements.Handelsblatt, June 2013

“


Securitisation

Recently the tone of high-level policymakers towards securitisation hasbecome more positive as they increasingly acknowledge the contribution thatsecuritisation can make to helping to restore growth in Europe. However,issuance remains low and the regulatory approach on the ground continues totreat securitisation harshly. A number of regulatory proposals were releasedin 2013 which, if implemented, could be very harmful to prospects for futureissuance of high quality securitisations.

Meanwhile, we are working with our members to continue to rebuild themarket’s reputation. The Prime Collateralised Securities (PCS) label is fullyestablished and has already built an impressive market share of eligibletransactions.

Our continuing challenge is to work with policymakers to achieve co-ordinated, sensibly-calibrated and evidence-based regulation that moreaccurately reflects the performance of high quality European securitisation, toenable it better to fund Europe’s recovery.

Industry structure/Liikanen

In May 2013, the European Commission published a consultation paper on theoptions for structural reform of the banking sector in Europe. We havesubmitted a substantive response to the Commission and we are currentlydefining an appropriate outreach programme to promote the industrypositions – that structural separation of market-making activities will hinderthe ability of capital markets to support the European economy and that suchreforms risk reducing the diversity of the European funding model.


The year ahead

Our strategic priority for 2014 is to work towards positiveimplementation of the European wholesale financial market regulatoryagenda, promoting stable, efficient and integrated markets and restoringpublic confidence.

• With a focus on growth, seeking to maximize the contribution ofEurope’s wholesale financial markets to funding and investmentin the real economy

• Providing leadership on key issues such as structural reform andfinancial sector taxation

• Continuing to support regulatory efforts to create a strong andeffective supervisory and resolution framework in Europe

Structural separation of all ofEU banks’ trading activities islikely to lead to major changesin the structure of Europeancapital markets. In effect, itwould establish substantialbarriers to entry for EU basedbanks, force the withdrawal ofsmaller and mid-sized serviceproviders that depend on anoverall relationship-basedbusiness model and restrictthe ability of large banks todevelop their business modelsto accommodate for changesin client and marketrequirements.

We believe that regulatorypolicies, in order to promoteresiliency of the financialsystems as a whole, shouldendorse diversity in bankbusiness models. Therefore,we believe that theCommission’s objectives.... arebetter achieved throughimplementation of morebusiness specific measures,such as under the Recoveryand Resolution Directive(RRD), rather than through aone-size-fits-all structuralmeasure.Joint AFME-ISDA response to the ECconsultation on the structural reform ofthe banking sector, July 2013

Reshaping securitisationmarkets could also helpunlock additional sources oflong-term finance … and helpfinancial institutions freecapital, which can then bemobilized for additionallending.European Commission Green Paper onthe long-term financing of the Europeaneconomy, March 2013


Stronger together


In light of the increasingly global nature of regulatory reform initiatives, AFME has been active in the Global FinancialMarkets Association.

AFME is a member of the Global Financial Markets Association (GFMA), a forum forglobal systemically important banks (G-SIBs). Together with our partner tradeassociations – the Securities Industry and Financial Markets Association (SIFMA) inNorth America and the Asia Securities Industry & Financial Markets Association(ASIFMA) – GFMA represents the common interests of the world’s leading financialand capital market participants. Through the GFMA partnership, each member tradeassociation operates independently and is funded by its own regional members.

When a specific issue clearly represents a common interest that transcends regionalperspectives, GFMA coordinates on-the-ground advocacy efforts in each region.Beyond FX and commodities, AFME and its affiliates have engaged in a number ofissues globally through GFMA, including developing GFMA principles outlining bestpractice in the governance of financial benchmarks.

GFMA’s ‘Principles for Financial Benchmarks’ paper sets out key responsibilities forthe benchmark sponsor and clearly defines the roles of the participants, as well asidentifying ways to ensure transparency in the benchmarking process. The principlescover areas of benchmark quality, recordkeeping, data collection and outline how toset up effective controls. These principles have been noted in the issues outlined inbenchmark reviews such as the Wheatley Review of LIBOR.

Other GFMA initiatives include developing a position on the Basel Committee onBanking Supervision (BCBS) global liquidity standards, announced earlier this year,as well as the G-SIB cross-border resolution paper from the US Federal DepositInsurance Corporation and the Bank of England. GFMA has also played a leadershiprole in the ongoing development of the global Legal Entity Identifier system.

The global issuesForeign exchange is the most global ofmarkets. GFMA’s Global FX division, with22 members accounting for more than90% of the global FX market, representsmembers in North America, Asia Pacificand Europe. The division remainsfocused on maintaining a well-functioning global market, engagingmultiple global groups and isincreasingly seen at the centre ofindustry discussion.

The division has been working in anumber of areas, including efforts toensure appropriate risk mitigationtechniques for the FX markets and theimplementation of a foreign exchangetrade repository, which went live inearly 2013. The division has alsoestablished the FX Market ArchitectureGroup in an effort to bring efficiency to

the multiple technical and operationalchanges that will be required toimplement global regulatoryrequirements.

The team continues to push forinternational regulatory convergenceto ensure that the global FX marketdoes not fragment and drive up costsfor end-users.

GFMA’s Commodities Working Group(CWG), formed in 2012, continued itswork on creating a more level regulatoryplaying field for those markets andadvocating consistency and non-duplication among various legislativemeasures. This group has establisheditself as a driving force on issues suchas the Regulation on Energy MarketIntegrity and Transparency (REMIT)–

which is now moving towardimplementation phase for the newreporting and transparencyrequirements in the Europeanwholesale gas and power markets. Inthis context, the CWG will be involvedin the ACER-hosted roundtables fortrade associations, scheduled tocommence in the third quarter of 2013.

Other priorities include: opposingposition limits on a global scale andworking with the G20 on issues such asbenchmarks including IOSCO’sPrinciples for Oil Price ReportingAgencies, as well as the proposedamendments to MiFID/MIFIR.



For our members



Stay informed












Events





















For our members



Stay informed












Events






















Switchboard:+44 (0)20 7743 9300


Switchboard:+32 (0)2 401 8724

www.afme.eu





Credit

Equities Trading


Corporate Finance

Regulation



Commodities

High Yield

Securitisation

Prime Services

Post Trade

Compliance

Accounting

Tax/VAT



Board member firms




Switchboard:+44 (0)20 7743 9300


Switchboard:+32 (0)2 401 8724

www.afme.eu





Credit

Equities Trading


Corporate Finance

Regulation



Commodities

High Yield

Securitisation

Prime Services

Post Trade

Compliance

Accounting

Tax/VAT



Board member firms


Documents

Shaping the growth agenda - AFME · Shaping the growth agenda London O˘ce: ... •Mahmood Pradhan, Deputy Director & Mission Chief to the Eurozone, IMF •Peter Praet, Member of